Senior Credit Analyst - Emerging Markets, EM Spreads

Leandro Gubler

Senior Credit Analyst - Emerging Markets

EM Spreads

Credit

Companhia Siderurgica Nacional (CSNA3 BR)

<ul>
<li>We maintain Opportunistic Overweight and shift our preferred bond to the CSN Resources 8.875% 2030s.</li>
<li>Revenue rose 6.6% QoQ and adjusted EBITDA increased 4.8%, but net leverage climbed to 3.59x and adjusted free cash flow was negative R$714 million.</li>
<li>The exchange reduced 2028 maturities to R$5.88 billion but enlarged 2030 maturities; the cement sale remains the key near-term deleveraging catalyst.</li>
</ul>


We maintain Opportunistic Overweight and shift our preferred bond to the CSN Resources 8.875% 2030s.
Revenue rose 6.6% QoQ and adjusted EBITDA increased 4.8%, but net leverage climbed to 3.59x and adjusted free cash flow was negative R$714 million.
The exchange reduced 2028 maturities to R$5.88 billion but enlarged 2030 maturities; the cement sale remains the key near-term deleveraging catalyst.


CSN 2Q26: Better Operations, Credit Still Execution-Driven

Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

Equity Bottom-Up

<ul>
<li>We like <a href="https://www.smartkarma.com/entities/vale-sa" target="_blank" data-smartkarma-citation="entities:23731:1" rel="noopener">Vale (VALE US)</a> for its exposure to high-grade iron ore (95% of EBITDA) and capital return discipline, with a current dividend yield of 8% and 3.5x EV-EBITDA. </li>
<li>The cash flows from the iron ore business could be used to invest in base metals, such as copper, nickel, etc., to enhance the portfolio. </li>
<li>The key risk remains the overhang from the Mariana Dam disaster being settled for  ~25.7 billion USD (vs. the current market cap of 50 billion USD). </li>
</ul>


We like Vale (VALE US) for its exposure to high-grade iron ore (95% of EBITDA) and capital return discipline, with a current dividend yield of 8% and 3.5x EV-EBITDA. 
The cash flows from the iron ore business could be used to invest in base metals, such as copper, nickel, etc., to enhance the portfolio. 
The key risk remains the overhang from the Mariana Dam disaster being settled for  ~25.7 billion USD (vs. the current market cap of 50 billion USD). 


VALE US: Exposure to High-Grade Iron Ore With >8% Dividend Yield

<ul>
<li>
Key Outcome: CSN’s bridge loan improves near term funding visibility, but the credit remains a show-me deleveraging story tied to asset sales and cash conversion.</li>
<li>
Risk/Volatility: Liquidity quality remains the main caveat, with negative free cash flow, tight parent-level cash, secured debt risk, and refinancing execution still unresolved.</li>
<li>
Valuation Driver: Distressed pricing still compensates investors, but upside depends on visible asset monetization, debt reduction, and stronger recurring cash generation.</li>
</ul>



Key Outcome: CSN’s bridge loan improves near term funding visibility, but the credit remains a show-me deleveraging story tied to asset sales and cash conversion.

Risk/Volatility: Liquidity quality remains the main caveat, with negative free cash flow, tight parent-level cash, secured debt risk, and refinancing execution still unresolved.

Valuation Driver: Distressed pricing still compensates investors, but upside depends on visible asset monetization, debt reduction, and stronger recurring cash generation.


CSN 1Q26: Bridge Loan Supports a Show-Me Credit

<ul>
<li>Rising Leverage Pressures Liquidity: Despite an earnings beat, negative free cash flow and rising debt reduced cash to R$16 billion, heightening reliance on upcoming liability management to sustain liquidity.</li>
<li>Secured Debt Threatens Bondholders: A pending secured bank loan risks structural subordination for unsecured creditors, acting as the primary drag on bond pricing while increasing near-term execution risk.</li>
<li>Opportunistic Value in Long-End Bonds: Current valuations overstate default risk; the 2031 and 2032 bonds offer compelling upside for investors willing to weather near-term execution delays and asset sale uncertainty.</li>
</ul>


Rising Leverage Pressures Liquidity: Despite an earnings beat, negative free cash flow and rising debt reduced cash to R$16 billion, heightening reliance on upcoming liability management to sustain liquidity.
Secured Debt Threatens Bondholders: A pending secured bank loan risks structural subordination for unsecured creditors, acting as the primary drag on bond pricing while increasing near-term execution risk.
Opportunistic Value in Long-End Bonds: Current valuations overstate default risk; the 2031 and 2032 bonds offer compelling upside for investors willing to weather near-term execution delays and asset sale uncertainty.


CSN 4Q25: Structural Risks and Execution Remain Central

<ul>
<li>
Execution Risk Downgrade: S&amp;P’s downgrade to B+ reflects skepticism over the R$16–18bn asset sale timeline; however, the shift toward outright sales rather than IPOs improves deleveraging certainty for bondholders.</li>
<li>
Strategic Inflection Point: Management’s potential exit from steelmaking signals a radical balance sheet solution that could cut net leverage to 2.0x, though it increases long-term sensitivity to iron ore cycles.</li>
<li>
Attractive Total Return: CSN 2031 and 2032 bonds offer compelling carry and convexity, trading at a 590 bps spread premium that overcompensates for timing risks and backward-looking rating methodologies.</li>
</ul>



Execution Risk Downgrade: S&amp;P’s downgrade to B+ reflects skepticism over the R$16–18bn asset sale timeline; however, the shift toward outright sales rather than IPOs improves deleveraging certainty for bondholders.

Strategic Inflection Point: Management’s potential exit from steelmaking signals a radical balance sheet solution that could cut net leverage to 2.0x, though it increases long-term sensitivity to iron ore cycles.

Attractive Total Return: CSN 2031 and 2032 bonds offer compelling carry and convexity, trading at a 590 bps spread premium that overcompensates for timing risks and backward-looking rating methodologies.


CSN: S&P Downgrade Reinforces Execution Risk, Thesis Persists

Brazil

Companhia Siderurgica Nacional (CSN) is a Brazilian multinational company that operates as an integrated steel producer, primarily focusing on flat steel products, mining iron ore, and producing cement. The company also has significant operations in logistics and energy sectors. CSN was founded on April 9, 1941, and is headquartered in São Paulo, Brazil.

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Companhia Siderurgica Nacional (CSNA3 BR)

CSN 2Q26: Better Operations, Credit Still Execution-Driven

CSN’s steel rebound and bond exchange eased near-term refinancing risk, but negative free cash flow and tight parent liquidity keep deleveraging...

Leandro Gubler

VALE US: Exposure to High-Grade Iron Ore With >8% Dividend Yield

We initiate coverage on VALE US, one of the world's biggest iron ore producers, with high-grade iron ore and low-cost production. The stock trades...

Sameer Taneja

CSN 1Q26: Bridge Loan Supports a Show-Me Credit

CSN’s bridge loan buys time, not a clean credit reset, leaving the recovery trade dependent on asset sales, cash conversion, and refinancing...

Leandro Gubler

CSN 4Q25: Structural Risks and Execution Remain Central

While CSN’s 4Q beat is overshadowed by rising leverage and secured debt risks, deeply discounted 2031/32 bonds offer massive upside for investors...

Leandro Gubler

CSN: S&P Downgrade Reinforces Execution Risk, Thesis Persists

S&P’s downgrade misses the forest for the trees. CSN’s radical pivot to asset sales offers a credible path to 2.0x net leverage, making current...

Leandro Gubler

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